A tug of war between tax dept and welfare organisation over surplus income from investments

LAHORE: Welfare organisations utilising the surplus income out of their investments for their own beneficiaries are exempted from income tax, said sources.

Generally, they said, these welfare organisations invest in the industrial undertakings or otherwise to raise their income for the collective benefit of their beneficiaries.

However, the tax department treats such incomes from interest on bank deposits as taxable under section 30 of the Income Tax Ordinance as income from other sources instead of income from the business which is exempted under clause 62 of the 2nd schedule of the Ordinance.

Most of the welfare organisations are working as welfare trusts and are established under the Charitable Endowments Act 1890 and as per the objectives, functions and Memorandum of the Association.

But the tax authorities, said the sources, do not verify the primary businesses, functions and assess the income out of their business activities as income from other sources for tax purposes. They ignore the fact that the income from interest on bank account is in fact business income used in furtherance of welfare activities.

According to the sources, a tug of war like situation arises between the welfare organisations and the income tax department after every few years and the department sets aside the clear-cut instructions from the tribunals to treat the income as income from business, as the welfare organisations utilize income earned from its investments for the collective benefit of the beneficiaries of the foundation.

Therefore, it is the business of the welfare foundations to invest in business to raise income for the purposes of its welfare projects.

The department; however, without disputing the objects of the foundation or the fact that the income is used for welfare purposes, it assesses the income from interest on bank account as income from other sources to tax it.

On the contrary, the welfare foundations rely upon the orders from the tribunals based on a thorough examination of record and facts and conclude that the primary business of the foundations is to invest money to earn money for welfare projects.

The sources said where a decision has been given on the same set of facts; it is binding on the department as it cannot ignore the rule of consistency in any situation. The welfare organisations have urged the government to stop the department from agitating repeatedly the already settled issue to raise revenue.

Copyright Business Recorder, 2023